Startups must iron out governance issues
The unravelling of homegrown edtech giant Byju’s is a setback for India’s startup ecosystem. Byju’s, which emerged as probably one of the most influential startups after Flipkart, is on a slippery slope. It has defaulted on debt repayment, handed over pink slips to thousands of employees, and delayed the release of FY22 financial statements, leading to the resignation of its auditor Deloitte Haskins & Sells. The exit of three external board members (without giving specific reasons) added to the woes of the company. All this raises serious questions vis-à-vis corporate governance. And it does not augur well for the startup ecosystem, which has thrived on relatively easier norms, fewer compliances, and hordes of easy money flowing in from foreign investors.
But Byju’s case isn’t an isolated one: reports of non-compliance, financial impropriety and irregularities in startups have become a daily affair. Healthtech startup Mojocare is facing scrutiny from its investors after they uncovered ‘financial irregularities’. The investors have initiated a review of the company’s financial statements. Online car service and repair startup GoMechanic, too, faced similar issues, and it admitted to financial reporting errors. There are many more cases: Ankiti Bose, former Zilingo CEO, and Ashneer Grover, former MD and founder of BharatPe, were forced to quit after allegations of financial irregularities. What makes matters worse is the full-blown public spat between these founders and the investors.
The government has been promoting and encouraging young entrepreneurs and new businesses to make India an innovation hub. It is doing so with the aim of creating enough jobs for India’s youth. But frequent collapses of promising startups and allegations of financial misconduct are causes for serious concern. The government makes many exceptions for and gives concessions to these firms so they can make meaningful contributions to the economy. However, if financial and operational lapses become more of a norm than an exception, the government and regulators may start tightening the rules, taking away various compliance- and tax-related exemptions.
Startup founders have to realise that good corporate governance and financial propriety are key to the success of a business: there is no escape from them. By indulging in non-compliance and financial irregularities, even if out of ignorance, they are only queering the pitch for future startups.